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03/12/2016

Moscovici talks tough on budget discipline ahead of commissioner hearing

Euro & Finance

Moscovici talks tough on budget discipline ahead of commissioner hearing

France's choice for commissioner told MEPs he would be tough on Paris if necessary. [Parti Socialiste/Mathieu Delmestre/Flickr]

The European Commission will not let EU budget discipline rules be flouted, incoming economic affairs commissioner Pierre Moscovici said on Monday (29 September), days after his former colleagues in the French government said Paris would again miss EU targets.

Last year, European Union finance ministers gave Paris an extra two years to bring its budget deficit below the EU ceiling of 3% of national output after France missed a 2013 deadline in what is called the ‘excessive deficit procedure’.

But earlier this month, the French government said it would not meet the new 2015 deadline either and instead would reduce its budget shortfall below 3% only in 2017.

Moscovici, who was finance minister for two years until April, is due to take office in Brussels on 1 November, subject to a confirmation hearing on Thursday in the European Parliament.

He will be responsible for upholding EU budget discipline rules, but his nationality has made some EU lawmakers, notably Germans, concerned about fiscal laxity in the eurozone, wary that he might be inclined to show undue leniency towards France.

In written answers to European Parliament questions published on Monday, Moscovici sought to dispel such worries.

“Acting as an agent in the interest of the European economy as a whole, the Commission cannot accept that a member state in the excessive deficit procedure does not fulfill its duty vis-à-vis the other member states,” Moscovici said.

“Should a member state fail to take the necessary ‘effective action’ to comply with the recommendations set by the (European)Council … the Commission would propose to the Council to apply the rules.”

The Council groups the EU’s 28 national governments.

Taking effective action signifies that a government reduces its budget gap in structural terms, which means excluding the effects of the business cycle and one-off items by the amount requested by EU ministers.

In June 2013, the European Union asked France to reduce its budget gap in structural terms by 1.3% of GDP in 2013 and by 0.8% in both 2014 and 2015. But in March 2014, the Commission said France had cut its shortfall only by 1.1% in 2013, and would have achieved only 0.6% in 2014.

France’s 2015 budget, due to be presented on Wednesday, will be important because it may still step up the structural deficit reduction next year, and in this way raise the overall average closer to the targets set by the EU.

But Les Echos reported on Monday that France was planning only a 0.25% of GDP reduction in the structural deficit next year – well short of the 0.8% target.

If EU finance ministers decide that France has not taken the effective action they requested, they can step up the procedure against Paris by giving it notice.

If Paris were to ignore even that, it could be fined

Background

The excessive deficit procedure is laid out in article 126 of the Treaty on the Functioning of the European Union. This article obliges the member states to avoid excessive deficits in national budgets.

The Commission puts together a report, taking into account all the relevant factors (economic conditions, reforms, etc.), and the Council assesses whether or not the deficit is excessive.

If the Council decides that a member state's deficit is excessive, it begins by making appropriate recommendations. The state concerned then has a precise timescale in which to turn the situation around. If the state does not conform to the recommendations, the Council give them formal notice to take deficit reduction measures. If required, the Council is able to hand out sanctions or fines, or to invite the European Investment Bank to review its lending policy to the state concerned.

A deficit is considered excessive if it is above 3% of GDP. A 1997 Council regulation clarifies and accelerates the excessive deficit procedure.

Further Reading

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